5 Signs It’s Time to Refinance Your Business Loan

If you’re still working on paying off old business debt, refinancing may be the best option to handle the remaining payments.

The following five signs may indicate that it’s time to obtain a new loan to reduce your monthly expenditures and improve cash flow.

1. You Can Get a Better Rate

If it’s been a while since you took out your current loan, you may be able to find a much lower interest rate now. Talk with your lender about the going rates, and determine how much you can save by refinancing.

2. Your Financial State is Stronger

Most businesses have to take out loans to cover startup costs, and there’s not a lot of equity built up in the company at that point. After several years, though, you should be able to show your lender that you have more assets than liabilities.

As long as you’ve been running the company well, your credit score should also be stronger. These factors show that you know how to handle your finances, and this gives lenders more confidence in your ability to handle loan payments resulting in lower interest rates.

3. You’re Still Paying a Lot of Interest

As you get closer to the end of the terms of a loan, you shift from paying off interest to paying down the principal.

In this case, refinancing could wind up costing you more by putting you back in the cycle of paying interest. If, however, your monthly payments still haven’t scratched the surface of the principal, the lower rates offered by a refinancing deal have the potential to provide big savings in the long term.

4. You’re Having Trouble with Your Lender

Getting a loan during tough economic times may mean borrowing from a lender with less-than-perfect practices. You may find yourself locked into a loan with an exorbitant interest rate or fees that weren’t revealed up front. Or you may have borrowed from a merchant cash advance and find yourself in a hole that you can’t dig out of.

Refinancing gives you a chance to break free and find a more reputable lender to help ease your financial burden. Look for a trusted institution in your area, or ask other business owners in your network for recommendations to avoid getting roped into another bad deal.

5. It’s Worth the Cost

Refinancing often involves application and appraisal fees along with additional costs that amount to a percentage of the overall loan.

Calculate how much all of these payments will come to before accepting a deal, and subtract this from the amount you’ll save by refinancing. The goal is to wind up with a positive number big enough to justify going through the process. If possible find a lender that doesn’t charge you any application or appraisal fees.

Making smart decisions about refinancing your company’s debt can save a lot of money and free up funds that can then be invested back into the growth of your business. Research all of your options before committing to a new loan so that you can take full advantage of a refinancing deal.